The Internal Revenue Service has modified a policy it instituted earlier this year on not providing letter rulings or determination letters on certain tax questions related to distributions of stock of controlled corporations and will now provide them in two specific areas.
Revenue Procedure 2016-45 modifies Rev. Proc. 2016-3, which described areas of the Tax Code for which the IRS said it would not issue either letter rulings or determination letters. The new revenue procedure removes two of the so-called “no-rule areas” relating to distributions of stock of controlled corporations under Section 355 of the Tax Code. The IRS provides an annual list of such areas.
The two areas that are no longer considered by the IRS to be “no-rule areas” are significant legal issues relating to the requirement under Section 1.355-2(b) of the Income Tax Regulations that a distribution be carried out for a corporate business purpose, and a requirement under Sections 355(a)(1)(B) and 1.355-2(d) that a transaction not be used mainly as a device for the distribution of earnings and profits of the distributing corporation, the controlled corporation or both. A controlled corporation is a company that is effectively owned and controlled by another corporation.
The IRS said it has determined there are a number of unresolved legal issues in those two areas that could be germane to determining the tax consequences of a distribution. It has also decided it is appropriate and in the interest of sound tax administration to provide guidance to taxpayers on significant issues in those two particular areas.
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